DCisions launches ‘Fair Return Benchmarks’ – an objective standard for portfolio performance

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Consumers taking even a small amount of risk were well rewarded despite the turbulence of the last three years, reveals the launch edition of consumer insight specialist DCisons' Fair Return Benchmarks factsheet.

The DCisions database has made it possible for the first time to describe comparative DC investment risk objectively and publish benchmarks for the net return investors actually achieve at each different level of risk.

DCisions, the consumer insight specialist, recently launched the first instalment of their quarterly ‘Fair Return Benchmarks’ factsheet. Key highlights from the launch edition below:

Q2 2012 benchmark performance:

  •     ’Money under the mattress’ has not proved to be the best approach in the last three years - the fair return on £100 for a low risk portfolio, primarily cash, was just £102 (0.7% annualised), whilst those bearing just a little risk, with a medium-low risk portfolio, achieved an average of £123 (7.2% annualised) in the same period
  •     The high risk benchmark fared the best over a three-year period. An initial investment of £100 yielded a total of £136 (10.9% annualised) over three years
  •     Equally, higher risk portfolios also exhibited more variability as reflected by the negative one year returns for both medium-high and high risk strategies as at Q2 2012
  •     The FTSE DCisions Growth Index, a multi-asset target-date index, beat the medium risk benchmark by 2.5% annualised over three years while pure equity indices, represented by the FTSE 100 and the FTSE All-World underperformed the high risk benchmark by 0.1% and 0.2% annualised, respectively

The DCisions risk-graded benchmarks take indexing to the next level – the portfolio level, an industry first. These benchmarks allow for an objective and reliable comparison among multi-asset funds, a growing category, global equity funds and diversified consumer portfolios. Traditionally, these strategies have used self-proclaimed benchmarks; however, particularly with multi-asset funds and diversified portfolios, there is no common comparator. Research conducted by DCisions in Q1 2012 showed that across 24 different DC strategies, 9% of solutions used sector average as a benchmark, 39% used a bespoke blend, 45% used LIBOR / inflation and 17% used no benchmark at all.

How are the benchmarks calculated? DCisions continually monitors the performance of over 1.4 million real UK investors to objectively identify five different levels of investment risk i.e. low risk, medium-low risk, medium risk, medium-high risk and high risk. Within each risk level, the full and diverse range of returns achieved (after fees) is analysed, called the fair (or average) return. These fair returns constitute the benchmarks for each risk level.

Why are they relevant? Not only do these benchmarks allow consumers to objectively health-check their investments, they offer fund managers and advisers a robust tool to demonstrate value added. Furthermore, they enable scheme members and trustees to tangibly measure the performance of their long-term investment decisions.

Graham Mannion, Managing Director, DCisions, comments on the relevance of the benchmarks: ‘With our fair return benchmarks, which are based on fact and on objectively defined levels of risk, investors can health check the performance of their portfolio, using a simple yardstick which takes into account both risk and fees. The benchmarks benefit not just investors but the wider industry as well. Advisers, asset managers and pension schemes can use the benchmarks to assess and demonstrate risk-adjusted performance.’

Paul Thornton, OBE, Strategic Adviser to DCisions, comments: “The DCisions database has made it possible for the first time to describe comparative DC investment risk objectively and publish benchmarks for the net return investors actually achieve at each different level of risk. These reference points are invaluable in helping asset managers, advisers and their clients to demonstrate and monitor portfolio performance.”

The ‘Fair Return Benchmarks’ factsheet will be published quarterly, mapping the progress of the DCisions benchmarks over time. It also includes a 3-year trend analysis of the benchmarks and charts their ‘returns journey’ including the peaks and the troughs.

Click here to access the Q2 2012 factsheet. Watch out for the next one due early November 2012.


About DCisions:

DCisions harnesses enterprise data from leading financial institutions, monitoring the risk and return in more than one million real portfolios month-by-month, building on 5 years of history. DCisions is the leading provider of insight into consumer investing and drive the FTSE DCisions Index Series. The data and insight specialist is the recipient of the 2011 Innovation and 2009 Technology Provider Awards from European Pensions. For more information on DCisions, visit http://www.dcisions.com.

For further information, please contact:

Kritika Ashok: 020 7297 2508, kritika.ashok@dcisions.com.

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Kritika Ashok
DCisions Limited
020 7297 2367 2508
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